Andrew Bailey: ‘No trade-off’ between financial stability and growth
Andrew Bailey said it was right to have an “open public debate” about the balance between growth and regulation, while reaffirming that financial stability was a “foundation for growth”.
Speaking to the Treasury Select Committee, the Bank of England Governor said that addressing the UK’s “low potential growth rate” was a vital question in which regulation played a major role.
“Financial stability is a foundation for growth. There isn’t a trade off in a fundamental sense,” he said.
“Having said that, there are choices to be made about the particular choice of regulatory instruments and how regulation is operating to enable us to achieve the primary objective of financial stability, while also supporting the growth and competitiveness objective.”
Since 2023 the UK’s financial regulators have had to consider the impact of their decisions on the growth and competitiveness of the economy. This secondary objective sits alongside the primary objective of maintaining financial stability.
Bailey pointed to a couple of examples where the Prudential Regulation Authority (PRA) could ease the burden on firms, without endangering financial stability.
The PRA has been working on a tailored set of regulations for smaller banks post-Brexit known as the Strong and Simple Regime, which simplifies rules for smaller lenders.
This would distinguish the UK from the EU, where banks of all size face the same set of rules. The proposals would encourage competition and improve consumer choice, Bailey said.
Bailey also suggested that the PRA could simplify the rules on data reporting for UK financial firms outside of the EU’s “prescriptive” regime.
“We would like to make quite a substantial investment to simplify data reporting and make it more efficient,” he said.
“There is quite a lot of that reporting which, when you talk to the people who supervise banks, they say ‘well, we don’t use it all’. So there’s an opportunity to be more nimble.”
Robert Dedman, partner at CMS and former head of enforcement at the Bank of England, said stripping back this part of the rule-book would “drive efficiencies for firms and regulators alike”.
The government has been very clear in recent months that regulators need to take more account of the impact of their decisions on economic growth.
In her first Mansion House speech, delivered in November last year, Chancellor Rachel Reeves said post-crisis regulation had gone “too far“.
She wrote to 17 watchdogs on Christmas Eve demanding ideas to boost the competitiveness of companies within their remit.
“We are not going to be able to grow the economy if the regulators keep doing what they’re doing,” Reeves told the BBC in a recent interview.
Bailey said it was “right to have this debate about the balance between growth and regulation,” but said the Bank needed to maintain its ability to identify and communicate the potential risks.
“Our key job is to lay out the risks and the vulnerabilities…To say this is what we think the risks are and this is what you need to know…Its really important that this role is not inhibited,” he said.